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Economy Title: World stocks fall as growth, debt fears intensify LONDON (Reuters) - World stocks fell toward five-month lows on Wednesday as worries grew that fiscal cutbacks and stagnating output would prolong a global economic slowdown and aggravate Europe's debt crisis. Wall Street, however, looked set to bounce back after steep losses in the previous session. Tuesday's last-minute budget deal to avoid a U.S. default brought only short-term relief as the focus moved to the impact of tighter fiscal policy on the already slowing economy, illustrated by poor manufacturing data this week. Weak services sector figures on Wednesday for the euro zone and China accentuated the fragile outlook. Disappointing results from European banks -- Societe Generale becoming the latest -- also highlighted concerns the bloc's current rescue fund (EFSF) may be insufficient to stop peripheral debt problems from spreading to other countries, especially Italy and Spain. "Disappointing economic data on both sides of the Atlantic, as well as surging Italian and Spanish bond yields, has seen risk appetite plummet as pessimism about the global recovery starts to take hold with a vengeance," CMC Markets analyst Michael Hewson said. "The steam is slowly building in the sovereign debt pressure cooker as the realization slowly dawns that the EFSF doesn't have the funds to prevent a full-scale financial meltdown, which would only leave the European Central Bank as the last line of defense." The MSCI world equity index <.MIWD00000PUS> fell 0.5 percent, off lows that took it to its lowest since mid-March. The index is down 1.2 percent year-to-date. European stocks <.FTEU3> fell more than 1 percent but later recovered to lose around 0.4 percent. Societe Generale fell 6.9 percent after warning it would struggle to reach its 2012 profit target as its exposure to Greece and a tougher economic backdrop took its toll on second-quarter earnings. Emerging stocks <.MSCIEF> fell 1.5 percent. U.S. crude oil fell 0.8 percent to $93.02 a barrel. Bund futures were flat. The premium investors demand to hold Italian and Spanish 10-year government bonds over German Bunds widened further. Worries about Italy's huge public debt sent bond yields to 14-year highs on Tuesday and brought the euro zone's third largest economy closer to a full-scale financial crisis less than two weeks after euro zone policymakers agreed a deal aimed at preventing contagion. The dollar <.DXY> fell 0.5 percent against a basket of major currencies while the euro rose 0.7 percent to $1.429. The U.S. currency fell 0.3 percent to 77.08 yen but kept a distance from its record low near 76.25 on speculation about possible intervention by Japanese authorities. The euro rose 2 percent against the Swiss franc after the Swiss National Bank announced easing measures to try to counter a recent sharp appreciation in the Swiss currency. Investors have used the franc, backed by Switzerland's solid growth and well-balanced economy, as a safe haven against the debt problems of the euro zone and United States. (Editing by Stephen Nisbet)
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